Is ERP Recession Proof?

The economic downturn derailed at least one major enterprise resource planning (ERP) project when Minneapolis-based Select Comfort, the nation's leading bed retailer, abruptly cancelled the rollout of an estimated $20 million worth of SAP's supply chain management (SCM) and customer relationship management (CRM) applications in late December.

The cancellation came about as part of cost-cutting measures imposed upon Select by the Clinton Group, an investment firm that is a major Select Comfort shareholder.

The Select Comfort situation, however, is clearly an anomaly, as the ERP market remains relatively strong despite the deepening financial crisis. "We deal with hundreds of companies that have ERP," says Jim Shepherd, senior vice president, AMR Research. "I don't know of a single one that's cancelled an implementation."

Indeed, organizations continue to spend on ERP according to several recent ERP market studies such as one carried out by Irvine, California-based Resources Global Professionals of some 90 executives in Australia, the U.S. and Europe. Resources Global, an international consultancy, in fact, ranked ERP systems improvement as the number two IT priority for 2009, second only to business process improvement within the IT department. Of the respondents, 16% said they were planning ERP systems improvements while 10% said they were implementing new ERP modules.

A recent pole of clients by the Panorama Consulting Group in Denver indicated that 38% of respondents would begin or continue implementing a new system; 17% planned to upgrade current systems; 24% planned to improve existing systems while only 8% intend to keep current systems unchanged.

At the same time, however, while ERP upgrades and additions remain a priority, the recession has caused some companies to scale back on implementations, at least for the time being, Shepherd says.

In addition, Philip Day, head of marketing for the SAP Business Suite, notes that today ERP customers "are looking to shorten the payback windows." Also, instead of implementing ERP across the board all at once, they're often bringing up one function - supply chain, finance, audit, etc. —at a time.

Here Day is talking largely about organizations that have a relatively new ERP implementation currently underway. Those companies that have had core systems and processes in place for several years have largely reduced their spending to maintenance costs, and the selective addition of new user groups or modules as needed, Shepherd says.

The most promising aspect of the market, according to Day, are companies in what he calls the "Shining Light" category. These are major corporations such as Roche, Colgate-Palmolive, IBM and at least one large major alternative energy company that plan to launch ambitious new ERP implementations in 2010.

Further, both SAP and Oracle are looking to pick up government business thanks in part to the economic stimulus package and the retirement of legacy systems. SAP Public Services, Inc., a SAP subsidiary, for instance, recently announced that that Bernalillo County in New Mexico, the most heavily populated county in the state, has selected and implemented SAP's flagship ERP software.

For SAP and Oracle, of course, the impacts of a downturn are cushioned by revenues from their installed bases. The niche vendors, however, don't have that luxury, Shepherd notes, and as a result are far more vulnerable to financial woes and ultimately acquisition. "I think you'll see a new wave of consolidation once we climb out of this recession," Shepherd says.

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